Investing for Collapse

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shadow
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Investing for Collapse

Post by shadow »

Hello everyone,

This post is coming from the perspective of a young person who believes the collapse of civilization is near(ish). While I know this is a highly individual question, I was wondering what your thoughts were on investments that will be preserved/grow in a crisis scenario. I am considering this less from the "prepper" approach of storing food, medical supplies, etc. and more from the investor's angle; somewhere to put my future savings that would not be ruined by a large scale disaster or something relatively smaller like a stock market crash.

George the original one
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Re: Investing for Collapse

Post by George the original one »

You invest in skills.

Okay, that's not the answer you're looking for... you have to think about what kinds of collapses you're wanting to hedge against before you can figure out where to invest money. Violent government overthrow? Runaway inflation? Runaway deflation? Magnetic storm destroying electronics? Massive fraud? Oil is tapped out?

shadow
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Re: Investing for Collapse

Post by shadow »

@George,
Thanks for the reply. I am thinking about the most likely outcome in my opinion, a series of "small" disasters related to climate. So in my eyes this is most likely at least one of: immigration crisis, land shortage, political unrest, food security issues, lack of fossil fuels.

jacob
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Re: Investing for Collapse

Post by jacob »

The best investments are those that fit the "future" as it will become---not as it should be (because you don't have market moving capability). Timing is also exceedingly important but unfortunately widely ignored in favor of concepts like "the long run" (what's that 80 years from now? :-P ) or "near term" (like three months from now, or three years or thirteen?).

Aspects of civilization are already collapsing (while other aspects are still getting built up) ... but it's not evenly distributed around the world and even given a particular country or area, problems don't affect all people evenly. Some people, like criminals, might gain from a collapse of existing systems and norms.

A crisis is different from a collapse. What you want in a crisis are options. Whereas in a collapse, which might be slow (many decades) and sustained, keeping one's options open would be too expensive. A crisis tends to be temporary. A collapse tends to be terminal. A crisis can start and/or significantly speed up a collapse though.

A few "investments" that most don't consider before it's too late is a second passport/good connections with another locale (like a bank account). Health is also crucial, specifically not being on any prescriptions, and the ability to walk dozens of miles and run when required.

If you're strictly referring to financial instruments, the key to preservation/growth is not what the investments are as much as where they're placed. In particular, the best investment in terms of hanging onto your investments is investment skill.

Best advice I can give is to look around the world in places going downhill or through a crsis and see what attributes the "survivors", that is, those who make it out/through, have or are doing. I'll give some starting points to think about:
  • Yugoslavia
  • Syria
  • Guatemala
  • USSR
  • Appalachia
  • Detroit
  • New Orleans
  • Miami
Each have/had different issues and ways of resolving/avoiding/escaping them.

Jason
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Re: Investing for Collapse

Post by Jason »

Gee whiz. You have already lived longer than most people did a mere millennial ago. Get laid, watch a Disney movie and if you still feel this way, buy a first aid kit, although I'm not sure exactly how that's going to help when the marauding gets underway. Good luck!!!

classical_Liberal
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Re: Investing for Collapse

Post by classical_Liberal »

Invest in mobility. See @Jacobs comments about bank accounts and passport. Think about what is tying you to your geographic area. Given a couple days notice would you be able to collect enough assets to establish yourself somewhere else if you cannot access the financial markets for a prolonged period of time. Do you have skill sets that would be in high demand during crisis, to provided pull demand so other geographic areas or nations would want you there? Do you the ability to transport yourself, anyone important to you, and some supplies long distances? You social network needs to extend beyond local. Friends and family in other areas will be invaluable if you need to leave.

The alternative to this is "hunker down". You're better off asking the prepper crowd in the forum how to best do this.

shadow
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Re: Investing for Collapse

Post by shadow »

@Jacob
Thanks, will look into those countries. I understand the importance of health and skills and am working on those now.

@Jason
2/3 already taken care of ;P
Don't worry I have already gotten over the stress of it but the reason I am worried (which Jacob hit on pretty well) is that I just don't think the "your money will grow 1000% in the stock market in 50 years!" advice is viable for someone my age, I consulted the forum to hopefully widen my understanding of investing.

@Jacob/Classical_Liberal
I had not considered the importance of mobility, thanks for the advice. C_L, the part about specifically developing skills that will make other countries want you is especially valuable. Thank you both.

AnalyticalEngine
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Re: Investing for Collapse

Post by AnalyticalEngine »

Not to sound like an old geezer, but if you're young OP, I'd be careful in trying to avoid getting caught in the "Narrative of Collapse." Because while it is true there are untold problems with the world (climate change, peak oil, etc), I find "Collapse" to be thought terminating for the same reason terms like "Capitalism" or "Political Correctness" are. Which is to say, it's not that elements of Collapse aren't true, but "Collapse" can easily turn into a narrative that derails the rest of your life. I've seen this especially derail younger people who may not have the life experience to put "Collapse" into context yet.

My advice is to not lose sight of the trees for the forest. "Collapse" will really be a series of crises that may or may not impact you. So try to break it up into things that are as specific as possible and try to specifically solve each problem without falling victim to Collapse as Narrative.

The single biggest thing you can do is invest in skills and a flexible mindset. Jacob's advice on looking at "survivors" of local failures is probably the best place to start. What's true about a lot of people who aren't "survivors" is they get stuck in the Old Narrative before they notice things are changing. This is pretty similar to the trap of getting stuck in New Narrative of things that may or may not happen depending on your personal circumstances.

Dave
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Re: Investing for Collapse

Post by Dave »

Every asset's present value is calculated as taking its future cash flows and discounting them back to today at an appropriate discount rate. To do this, you need to be able to calculate its future cash flows with some level of reliability and then determine an appropriate discount rate. If you pay a price equal to its present value and your estimates are precisely accurate, you will earn your discount rate if you hold it indefinitely. In reality, the price of securities bounce around a lot so your actual return assuming you are not buying and holding forever will depend a lot on the sentiment surrounding the asset at the time you sell it.

So investing for a collapse situation is in fact the exact same as investing in any other situation - in both these situations you need to determine the future cash flows of asset (earnings in the case of stocks, interest/repayment of principal in the case of bonds, etc.) and then discount them back to today. The only difference is that you think a collapse scenario is more likely than perhaps the "average" investor.

To @jacob's point, what matters is actually what does happen, not what you think should happen. My point is you need to actually really believe what that this collapse is likely, not just that it's something you are worried about. And to @jacob's other point, the timing matters, but I think I can get a little more specific here. Thinking back to my first paragraph, you can think of the value of a business as being the cumulative net present value of every year of earnings. You can see then how depending on the type of business and its growth rate, what years matter varies a tremendous amount.

What I mean by that is for an Amazon-type business, what matters is where earnings are going to be 30+ years out, because of the high growth rate and high stock price relative to those earnings. The stock trades at a high multiple to current earnings so the current earnings of the business represent a small return relative to the current stock price, so what you are really betting on is future earnings that are way higher.

Conversely, if you look at a contract coal (and limerock and potentially lithium) miner like Nacco Industries (ticker: NC), it trades at 7.5x earnings, or a 13% earnings yield. In the case of NC, if those earnings hold up for 7.5 years, you break even. So don't need 30 years to work for NC, but rather you need this business to basically hold its earnings for 10-15 years.

My point is that the timing of your projected collapse scenario matters a ton in terms of determining where to invest. If you think the entire economy is going to collapse in the next 5 years, it would be insane to invest in almost anything. Realistically, though, some pockets of the economy are going to do fine and even thrive, while the broader economy struggles. But even for those parts of the economy that struggles, what matters is the price you pay relative to the value of the asset.

The Nacco Industries situation is a great example of that. Few people would argue for the long-term survival of the coal industry. But, an investment in NC can work out fine if this company can generate profits similar to its recent past for 15 more years.

What I'm trying to say is I think it's hard to generalize about "where" to invest because even in collapse scenarios you can make money on industries that will be affected by various forms of collapse. I'm guessing you are looking for what sectors of the economy make the most sense, but what I'm saying is that you have to consider whether the market has already factored in the same thing as you and driven up the prices of those sectors as a result of the desire for assets with superior earnings durability. If that's the case, you won't necessarily do well because you are overpaying for certainty.

Still, I think it makes sense to hunt for those areas. In general, in any sort of asset valuation, the durability of the earnings stream is important to the integrity of the valuation. If you're way wrong on the projection of earnings, your valuation is worthless. So looking out at durable earnings streams - some of which may be in sectors that will be durable and thrive in downturns - is a great idea.

I'm just advising you to not overpay for that safety as other investors may be considering the same thing.

That's the meaning of that phrase that goes something like "a great business can be an awful investment and an awful business can be a great investment".

Money is made in the market (in terms of fundamental investing) by handicapping odds more accurately than other participants. Keep that in mind as you look out for those sectors and companies that will thrive in your collapse scenario.

I know that probably went in a very specific direction you may not have asking about, but I think it's worth keeping in mind as you think through the specific industries and business models that will have sufficiently durable earnings going forward in your assumed scenario.

George the original one
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Re: Investing for Collapse

Post by George the original one »

shadow wrote:
Fri Feb 21, 2020 6:31 pm
@George,
Thanks for the reply. I am thinking about the most likely outcome in my opinion, a series of "small" disasters related to climate. So in my eyes this is most likely at least one of: immigration crisis, land shortage, political unrest, food security issues, lack of fossil fuels.
Has there ever been an immigration crisis before? I can only think in terms of trying to emigrate and not being allowed to do so. So what is an immigration crisis?

Land shortage. What does that look like? Are you thinking of arable land? Or some place for people to reside? Residences tend to go vertical rather than sprawling when land is unavailable, so construction companies & construction equipment manufacturers do well.

We've had lots of political unrest examples before, so not much to ponder here. Portability & recognition of assets is the primary concern. Real estate claims can survive, but structures might not... one of my friends had a relative who owned a "castle" in Beirut, but it was just so much rubble by the end of the '80s. Mobility is desireable. Distasteful as it might be, the arms trade is profitable.

Food security takes several forms. Transportation, contamination, storage, & crop failure. When there isn't any food to be bought through normal channels, then abnormal channels are profitable (Russia, China). If there's no money to buy food, then people starve and there's no chance for profit (Ethiopia).

Lack of fossil fuels means resorting to local supplies and a shift to alternative technology (alcohol, bio-diesel, & windpower). Eventually alternative tech will win out because trade is so much more desireable than no trade. EROI of fossil fuels & carbon limits will decide how that plays out globally, but there will certainly be border crises spiking.

jacob
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Re: Investing for Collapse

Post by jacob »

This is mainly responding to the OP and reiterating some important points, one of which is this quote:
AnalyticalEngine wrote:
Fri Feb 21, 2020 7:25 pm
Which is to say, it's not that elements of Collapse aren't true, but "Collapse" can easily turn into a narrative that derails the rest of your life. I've seen this especially derail younger people who may not have the life experience to put "Collapse" into context yet.
Or older people who have never been exposed to the concepts before. Overreactions frequently turn into a hot mess with people cashing out their 401k's because they read a newspaper article about "how things are worse than what has been reported" and then they join an online echo chamber to get it confirmed by other people who recently lost their minds.

A good rule is that collapse is something that happens slowly to everybody (the background trend) and then suddenly to select individuals. This is what makes it tricky to deal with. Overreacting could and does make people cash out their savings to buy a seat in a "commune" (having heard that "community is the most important") waiting for things that don't materialize. This might make for an interesting life, but ... Consider that the climate has been collapsing for a good 40 years now (insofar 350ppm was considered the danger zone). Calls that the end is near (within the next 5 years) are already 20 years old. Thus when hearing "near term predictions" it's wise to consider how long these calls have been made. That's likely to be a better estimate for the actual number. E.g. serious person has been predicting TEOTWAWKI next year for the past 20 years => Figure that it's on the order of 20 years away.

Another key point is that the most and the best "investments" one can make don't really cost a lot of money. Things like health, a different framework, paying attention, some strategic choices not to anchor into a bad situation, ... are quite cheap. However, taking the above example, after cashing out retirement savings, people plow it into gold and permaculture farms instead. This is great if one actually desires to become a permaculture farmer. However, many spend their monies in the same way as someone who thinks buying woodworking tools will make them into a carpenter or buying books (w/o reading them) will make them smarter. Mark Boyle is an example of someone who does it the right way. There are many who do it the wrong way, e.g. buying a farm and figuring that keeping a few tomato plants constitute sufficient practice.

ERE was specifically developed in a framework of resource scarcity (peak resources). As a result from living this way, money becomes mostly superfluous. Being superfluous, it makes sense to use it as a hedge in case one is wrong about peaks. It can thus be invested in traditional/growth frameworks. Read http://earlyretirementextreme.com/the-h ... treme.html and especially http://earlyretirementextreme.com/myths ... uture.html

Reading historical books, it's clear that it's extremely hard to "see it coming" when one is living through the times, whereas things are much clearer in retrospect. See e.g. https://www.amazon.com/dp/069117458X/ describing the life experience of East Germans born in 1920. They experienced Hitler's rise as teens, WWII as soldiers, the cold war separation during most of the adult life, and the eventual reunification in their retirement years. There are several other books trying to describe people's frameworks and perceptions as Nazi Germany developed. Some saw it coming from a mile away. Most didn't. It's all over the spectrum.

ffj
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Re: Investing for Collapse

Post by ffj »

"You invest in skills."

Plus 100 for George's comment.


If you have proper skills, then your adaptability to new situations will be much easier than someone who is one-dimensional. Always create options for yourself and your family.

This advice is a little vague but nobody can predict the future. The key is to have the versatility to adapt and the options to act.

Jason
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Re: Investing for Collapse

Post by Jason »

shadow wrote:
Fri Feb 21, 2020 6:52 pm
I just don't think the "your money will grow 1000% in the stock market in 50 years!" advice is viable for someone my age, I consulted the forum to hopefully widen my understanding of investing..
Which is a wise calculus. If you read BSOG (Biggie Smalls Original Gangster a/k/a Black Son of Grey) one of his themes is the disconnect or at least bifurcation between an individual's reality vs. the reality of the "world." People of your generation seem to be caught in an extreme pendulum: the micro of Facebook a/k/a extreme localism vs. the macro cable news of global politics a/k/a extreme universalism/idealism. There's no middle ground. Its practical outworking is "look at my new butt cheeks" posts on Instragam vs "let's rally to convince every government on the planet that carbon levels are too high irregardless of their sovereign political realities because we're all human beings in the end." It's the world wide web incarnate.

I can see why this would cause you to despair. But remember, the end of the world and the collapse of civilizations predictions are as old as the world and civilizations. And furthermore, Rome wasn't built in a day and neither did it collapse in a day. No one woke up scratching their balls through their toga one morning and said "Oh, shit, the Roman Empire is over." No one truly knows the historical age in which they are living. History is written in retrospect. That being said, I think your narrative is ultimately simplistic and reductionist. And deflective of personal responsibility. I mean what is "collapse." Some believe what we live in is no longer Western Civilization as far as its underlying assumptions and mores are considered. I am one of them. IMHO it's neo-pagan. But I don't think buying a shopping cart of spam and Duracell's is the next thing to do or will in the slightest manner help me. And well, the stock market is kicking ass. At least until yesterday. Warren Buffet spent most of his life investing under the threat of nuclear annihilation during he Cold War and he plodded along. Maybe there's a bomb shelter in his Kansas home for him and Charlie but as it turns out he would have been off spending the money on more Coca Cola stock.

TopHatFox
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Re: Investing for Collapse

Post by TopHatFox »

jacob wrote:
Fri Feb 21, 2020 6:35 pm
Best advice I can give is to look around the world in places going downhill or through a crsis and see what attributes the "survivors", that is, those who make it out/through, have or are doing. I'll give some starting points to think about:
  • Yugoslavia
  • Syria
  • Guatemala
  • USSR
  • Appalachia
  • Detroit
  • New Orleans
  • Miami
Each have/had different issues and ways of resolving/avoiding/escaping them.
Miami?

Also, collapse will probably be a slow descent. Buy a small house in a red state with manageable natural disasters, own some guns & ammo, some extra food, some extra first aid gear, extra fuel, and most importantly, get in-demand skills. The doctor or geologist will starve much later than the sociology major.
Last edited by TopHatFox on Sat Feb 22, 2020 10:52 am, edited 1 time in total.

TopHatFox
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Re: Investing for Collapse

Post by TopHatFox »

What’s wrong with Miami? I mean, I hate this place as much as the next guy and it’s pretty much SA, but it’s not post-apocalyptic like a place like Philly or Flint might be lol

tonyedgecombe
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Re: Investing for Collapse

Post by tonyedgecombe »

TopHatFox wrote:
Sat Feb 22, 2020 10:53 am
What’s wrong with Miami? I mean, I hate this place as much as the next guy and it’s pretty much SA, but it’s not post-apocalyptic like a place like Philly or Flint might be lol
Rising sea, sinking city. Miami looks like one of those places that could be in trouble in a fairly short timescale.

TopHatFox
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Re: Investing for Collapse

Post by TopHatFox »

OR: scuba diving paradise ;)

$500 tour.

BMF1102
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Re: Investing for Collapse

Post by BMF1102 »

@THF - What puts a Geologist on the same level as a Doctor?

jacob
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Re: Investing for Collapse

Post by jacob »

@THF - Yeah, Miami. See how difficult and literally tricky collapse is to observe in real-world wall-clock time?! There are a few secular trends that doom the city and a few trigger points that could cause a major crisis. The long trend is of course ocean rise which is already observed during king tides with standing water in the streets. Miami is ground zero in terms of major US cities. It's not staying away from beach property but realizing that things are connected.

Other than paying for coastal defenses, the aquifer is being penetrated both by encroaching ocean water but also from bodged superfund solutions and the fact that much of the cheap land development punted on sewer infrastructure and instead used septic tanks and drainage fields that are now getting very close to the rising ground water table (thanks to the rising ocean water penetrating the porous lime stone), which exists just a few feet below the surface, ultimately polluting the water supply. What then?

And of course, Miami sits right in the hurricane zone, but I guess people are so used to it/it hasn't happened in a long time so the risk is ignored, like in NOLA.

Residents tend to stay to the bitter end (google Holland Island and Tangier Island to see what that looks like) but economically speaking what hurts is that people will stop moving to the area thus slowly eroding the tax base needed to pay to maintain the city as an ongoing concern. (Chicago has similar population loss issues due to violence and pension liabilities ... but unlike Miami, those are human problems.)

Your other plan sounds like today's "Appalachia" or "Alabama". This means the collapse is primarily secular and economic resulting in expected issues such as poor (public) health, general poverty, and decreasing lifespans (think 60 instead of 80 years). Not sure what use they'd have for geologists or physicists, but being a doctor or a dentist would certainly come in handy and be valued... See e.g. https://www.theguardian.com/us-news/201 ... nt-poverty or
https://www.theguardian.com/news/2016/n ... lth-divide (Source check: Guardian).

Jason
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Re: Investing for Collapse

Post by Jason »

Instead of hedging against collapse, maybe think of the benefits one might find in face of a collapse. Such as the revelation of one's true character as it could be viewed as an opportunity to confront one's true nature being that one is suddenly forced to adapt to extreme and unanticipated circumstances. And by one's true nature, I refer to your's, not mine, because that type of bullshit is of no interest to me.

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